2025 Housing Market: Local Trends in a National Slowdown

- Hello, everyone. I'm Richard Green. I'm director of the USC Lusk Center for Real Estate, and this is "Lusk Perspectives," a series of webinars/podcasts that we do on the state of the real estate market. And today, we are very lucky to have with us as our guest Selma Hepp, the chief economist of what is now Cotality. I think most of our audience would know it as CoreLogic. Selma, welcome to the podcast.

- Hi, Richard. Thanks so much for having me.

- It's always good to see you, Selma. I like to start these things by asking people to tell us a little bit about how they got to where they are, and then, we'll get down to the meat of the topic today.

- Well, it's been a 30 year story. And I say that because this marks 30 years since I came to the US. It was August 10th, 1995.

- And if I may say so then in these times, again, another demonstration of how one of the things that has strengthened us as a country is getting the smartest people from around the world to come to these shores.

- Yeah, no, I think about, you know, sometimes if the situation was then as it is today, if I would be here today. You know, I came as an exchange student. I went to college. I got a scholarship. That's how I was able to put myself through school. And then, I worked during my Master's, and I had assistantship during my PhD. So, you know, I worked the entire time that I was going to school. But I did all my schooling here. And the system was obviously very receptive of us international students. And so, I don't know if I mentioned. I'm Croatian. And so, yeah, my entire career has been in housing economics. I started off... Well, I had a very short stint in real estate as a real estate agent out of my Master's program. Didn't particularly like that 'cause I'm very socially awkward sometimes. I know people say it doesn't come across like this, but I am. I can be socially awkward, and I don't like engaging, talking on the phone a lot, or doing all the stuff that agents have to do. And so I have a lot of respect for them. But I was not good at that. So I decided to go get my PhD, and that was on the topic of urban economics and, you know, how cities grew post-1970s, out-migration era, out of the urban centers, and how people started coming back to the cities back in early 2000s. And so that was sort of premise of my dissertation. I looked at also the foreclosure crisis, the early foreclosure crisis. Early, I say. At the beginning of this millennium during the Great Financial Crisis, how that distributionally, geographically looked across the city. And so I found that people that were located in areas that were closer to employment and closer to transit were less likely to go into foreclosure because it was easier to sell the home, hence the demand for urban locations. So I did that, and then I... Let's see what else? What did I do? So during my PhD, I got a job at the National Association of Realtors as an economist. And I learned a lot about what I do today actually, which is, you know, being housing economist I suppose. And then, so I was in the National Association of Realtors. I went to work, after I finished my PhD, to California Association of Realtors. That's where I met you, Richard, when I moved here to California. So that was about 13 years ago. And then, I went to work for Trulia as chief economist. And then, I worked for a brokerage up in the Bay Area that was a Christie's affiliate that was later bought by Compass. Compass is now a big real estate company in the US. And then, I came to CoreLogic, now Cotality. And I've been here for five years now.

- I was gonna ask how long you've been in Cotality? Five years.

- Five years, yeah.

- Yeah. Okay. Okay, and for those who don't know, Cotality is the go-to place if you want data on, in particular, things like mortgage performance. So a lot of the Federal Reserve research around mortgage performance, mortgage default, prepayment, et cetera, originations, and so on, is based on the data that Cotality provides. So, Selma-

- [Selma] Can I just add something to that?

- Yeah.

- So, you know, we mentioned the brand name change from CoreLogic to Cotality. And that actually reflects that we have a move to being just mortgage performance data company to being sort of a 360 degree view of property. So now, we have many different layers of data related to property, including, you know, well, we used to have property records. We have property records, but now we have a lot of elements that speak to the climate, climate risks. We have climate analytics tool that looks at weather patterns, structural characteristics of a home, and we developed a score at the property level.

- Yeah.

- The exposure. So we do a lot more now than just mortgage performance.

- So I wanna come back to that score, but let's start with what I think everybody wants to know about, which is what's going on in the housing market right now. So let's just start with a national picture, overall. I mean, I think people know that the market is quite slow, by historical standards, at the moment, but could you fill out that statement with some more detail, or am I wrong when I say that?

- No, no, you're absolutely right. We are in a third year, I would say, of really, really slow home sales activity. And it's, you know, numbers that come up often is that home sales activity is at the levels that it was in 1995. So very, very few home sales annually happening at the moment. But I think what's even more important to think about is when you adjust for population growth, how much slower home sales is even then, you know, so we are at the slowest levels that we've been, even coming outta Great Financial Crisis. We are somewhere adjusted for households somewhere where we were back in 1980s in terms of the total home sales activity.

- And let's remind our audience what were interest rates like in the 1980s?

- Oh, they were double digits. They were, you know, 15 to 20% for a period of time. Although, I think I heard even over 20% for some folks. Yeah.

- Okay. Even back then that was a subprime loan, even back then.

- Yeah, okay, yeah, it was.

- If it was over 20, but yeah, they were in the high teens.

- Yeah, they were.

- For sure. And so the point is you have a level of sales relative to households now that you did in an era where you had interest rates that were more than double-

- Yeah.

- Where they are right now.

- Yeah.

- So really quite extraordinary. So let's talk about what do you think are the principle reasons why sales nationally are so slow at the moment?

- Well, you know, I think one thing that you cannot escape from is affordability issue. We have huge affordability issue across many, many markets. Not all markets are equally challenged by affordability, but, you know, nationally, the affordability picture looks pretty bleak. Very few people can afford the ratio of, you know, income to prices is very... Well, so price income needed to buy a home is very high. And so not a lot of people are able to buy. And then on top of that, coming out of the pandemic, what has been characterizing housing markets that contribute to the challenge is that we didn't have a lot of inventory, which has then put pressure on home prices. Even when Federal Reserve started raising interest rates, even when interest rates doubled from those super lows in 2021, we still continue to see pretty persistent home price appreciation. And that was a function of a very low inventories. So it was, you know, low inventories, insufficient construction over a period of last almost about, I'd say 20 years. Maybe not 20 years. Coming outta Great Financial Crisis, so maybe 15 years. So, sorry, I lost my train of thought. Not enough inventory. Strong rate of home price appreciation versus income growth, which led to a lack of affordability. And so here we are today. Not a lot of people can buy, but what's changed this year, and it's supposed to be a boost for the market, is that we do see more inventory now. That lock-in effect that we were really, really worried about, you know, has loosened some, maybe not necessarily among households that do have a mortgage at 3%, but we do have 40% of homeowners that own free and clear. And we have had a lot of second home purchases and investors over the course of last few years that maybe are deciding to let go of that property because holding costs have gone up so much. And by holding costs, I mean things other than mortgage payment, principle, and interest, but insurance and property taxes. And so that's made it very expensive for people to hold on to some of these extra properties that they had. And so we do see in many markets inventories rising finally, which is helping provide buyers with some level of advantage 'cause at least there's more inventory, but it's also helped suppress the rate of home price appreciation. So we are now at some of the slowest levels of home price appreciation since 2012. We are up only 1.8% in our latest data.

- And that's year over year?

- [Selma] That's year over year, yeah.

- Yeah, and so what about if we... And I know there's problems with seasonality, but if we look recently at month over month, what's it looking like?

- I have, yeah, yeah. I do look at month over month data. We don't seasonally adjust numbers in our Cotality HPI, but then that's why I compare it to the same months in previous years.

- Yeah, yeah.

- So I looked at May data for this year, and home prices were up 0.3%. And in the period between 2015 and 2019, home prices were up on average 0.8% during this month, April to May. So this is one of the strongest periods within a year-

- Yeah.

- For appreciation. It's spring home buying season. So really, you know, weak in a sense compared to that pre-pandemic average.

- So, let's talk a little more about inventory for a second. Is there a rule that you use about what level of inventory is a sign that the housing market's gonna be in real trouble? Are we getting close to that level yet?

- So, you know, generally, when people talk about months of supply and months of supply being at five months of supply, you have a balanced market. We are at like three month's supply of inventory. But the reason why I don't personally care for that measure is because month's supply is impacted by a rate of sales. So if you have slower rate of sales alone, your month supply is gonna go up. It doesn't mean you have more inventory. It just means fewer homes are being sold. So I look at raw inventory data, and, you know, I adjusted for household formation and things like that. So in that sense, when you look at the total inventory per households, that is at some of the lowest levels that we've seen. Generally, you would be at about 2.2. Now we are at about 1.3, and I'm actually gonna look at my data really quick so that I make sure that I don't give you wrong information. I just looked at this slide. So it's 15, not two, but at coming into 2000, the average was about 20 homes, new or existing per 1,000 households. And, now we are at 15, and it's been on the decline coming outta the great financial crisis, and the lowest that it's been was at about 10ish in 2022 and 2023.

- Okay, so by historical standards, we still don't have a lot of inventory nationally.

- No, we don't.

- But, of course, there isn't a national housing market. So let's take a spin around America. I'm gonna start in the southeastern corner of the country and then kind of work our way counterclockwise in part, so we can have more of an upbeat discussion at the the end. But let's start by talking about what's going on in Florida.

- Yeah, Florida, unfortunately, has been hit by, you know, so many things all at once. So where do I start? Well, lemme start with prices. So home prices in Florida appreciated cumulatively most than any other part of the country. So in Florida, home prices today are up, like about 80 to 90% compared to 2020. So in five year period. Nationally, that's about 40 to 45%. So almost double, right? And it's very specific to sort of markets in Florida and some Texas markets as well. Why? There was a lot of migration, especially to Florida during the pandemic and especially among higher income households, which is, you know, one of the reason why you could get so much appreciation in light of very, you know... The market was already very challenged in terms of affordability even prior to the pandemic, right? But then you had, you know, a lot of higher income households coming in, a lot of home buying demand, and then, you know, then in the midst of this pandemic situation, you have natural disasters, right? This is the area prone to natural disasters. You know, up until a couple years ago, we didn't have natural disaster risk properly priced into insurance costs. So insurance costs were relatively low compared to the risk and exposure. And also because of the concentration of exposure now because you have much more construction in that area. You had accumulation of high value. You know, your total valuation of real estate has gone up so much. And you have persistent natural disasters. So with natural disasters being more frequent and disasters more costly, the impact, you know, has reflected itself in rise in of insurance costs. So that was sort of the first thing that hit the market in Florida. And that wasn't just Florida, but because of such high exposure it was notably higher in Florida. Florida also had some other things with like, you know, it was really easy to sue people. And so there was some transfer of assignability, you know, like, so... I don't know if I'm gonna explain this properly, but contractors could easily be sued for things. And so that contributes to some of those increases as well. And there's a lot of lawsuits. And, you know, cost of insurance is not just about natural disasters, but it's also this component of our society where we, you know, have a lot of class action suits that are very, very expensive. You know, and, obviously, that feeds in, too. So, okay, so we have insurance costs going up. And then, you know, so it became really with insurance costs alone... On top of insurance costs, what else happened is you had this law being passed for condominium buildings where you had to have enough reserve, you know, to update the building to the building standards, you know, where if there's a natural disasters, the building becomes more resilient. That made it very difficult for folks who are on fixed income to come up with that difference you know, for reserves. And so you started to see a lot more condominiums being listed for sale because people could not hold onto them anymore. So that's where it all started. But, you know, it sort, you know, insurance costs slowing of the housing market. Now, coming out of the pandemic, you also had significant slowing of in migration to Florida. It's actually one of the largest declines in the number of people coming into the state, right?

- Yeah, as a matter of fact, what's interesting, if you look at ACS data, if you look at domestic migration for Broward, Dade, and Palm Beach as well as Hillsborough and Pinellas Counties, so sort of Tampa, St. Petersburg, and then South Florida, there's been domestic out migration for the last year. And if it weren't for a foreign migration, they'd be losing population right now.

- Right, right, exactly. So, that contributed to weaker demand. And then at the same time, you have very... You know, over the last few years, new construction has been very, you know, dominant in that market. So a lot of new homes being added. And that all came to a stop with less migration. And now you have market that's, you know, sort of trying to find its new price, right? And in many markets in Florida now home prices are declining. You have much more inventory, you have weak demand and slowing, and so home prices are falling.

- So do you think this could produce the kind of cascade, maybe not, you know, at a national level, but before we had the Great Financial Crisis, we had a series of localized housing crashes, right? We had the rust belt in the '70s. We had the Texas oil patch in the '80s. We had California in the late '80s and early '90s. We had New England in the late '80s and early '90s. And the story of the housing market used to be, well, there was never a national housing collapse. Of course, that changed in 2007, but we would have these regional collapses. Do you think Florida might be on the verge of one of those sorts of regional collapses?

- Well, I don't know if it collapse is the right word, but it's definitely a market that's resetting. It's definitely a market in decline. You know, in terms of home prices, you know, some markets are down about 8%. Do we see more home price decline? Probably. You know, but is it a collapse? You know, I don't know when say collapse to mean... I'm thinking about like widespread foreclosures, you know, home prices down 40%. I don't see that happening.

- Okay, I guess part of it is one of the things that you used to follow, your company used to follow, and I don't know if they still do, is the share of homeowners were upside down. And I think you stopped doing that a few years back 'cause basically that number went to zero.

- Yeah, yeah.

- With the increase-

- We still do it, but we turned it into... It's not anymore a negative equity report. It's now an equity report.

- [Richard] Okay.

- 'Cause so many people build up equity.

- So are you starting to see people with negative equity in Florida is I guess what I'm getting at.

- Yeah, we do. We do, but what's interesting... So lemme start with national picture. Nationally, it's only about 2.1% of folks that are in negative equity. Coming outta Great Financial Crisis that was 40%. Sorry, 25%, no, 25%. 40%, prices were down. 25% were negative equity. Now it's 2.1%. This is off of the lowest that we've been was 1.7% about couple years ago. And this 2.1% has been the case for the last couple of quarters. So we haven't seen much increase there. Now, mind you, so it's a regional story, right? This is a national number that I'm sharing. There are many markets in Northeast where you see a lot continued increase in home prices and a lot, like high single digits, that may be offsetting. But are we seeing significantly more people underwater? The highest market for people underwater is Louisiana, and that's about 5.8%. But that's been the case. You know, that this is also sort of an artifact of the Great Financial Crisis because some people never regained back. 'Cause you didn't see the same level of home price appreciation there that you saw maybe in California and other market. So, it's still not a huge risk to the national economy.

- Okay. It occurs to me that when you say underwater for parts of Florida and Louisiana, it's not just metaphorical.

- Pun intended, yeah.

- It's real. Right? Right?

- Yeah.

- Okay, so let's move. We're gonna cross over Louisiana. Let's move west to Texas. What's going on in Texas housing markets right now?

- Well, Texas, a similar situation in terms of migration, although I don't see the migration. Migration hasn't slowed as much as it has to Florida. But what has gone up a lot is insurance costs and property taxes. In fact, property taxes is the biggest now issue in Texas. And I think you actually wrote something about that where you compared like California markets versus Texas markets and how property taxes versus income taxes.

- If you are at the median, yeah, yeah.

- Yeah, yeah.

- No, there are so many... I mean, I don't want to dismiss California's very real problems, but there are all kinds of ways that you are still economically better off in California than in Texas. The most important, you're gonna make a higher income for the same job in California as you are in Texas.

- Right.

- And the number I really like: if you're a 1-percenter in California, you make so much more money than if you're a 1-percenter in Texas that even with all of our taxes and all of their taxes, your after-tax income is higher in California at the 1% than it is in Texas. And then your cost of your house is more expensive and so on. But yes, the property taxes are high in Texas, and they've been getting higher pretty rapidly because they have a real ad valorem tax system, and their property values have been going up.

- Right, exactly. So we, you know, unlike the Prop 13, which caps our taxes here, they don't have the same thing. And so, you know, people have seen significant... So, you know, especially during the period 2021, 2022, where you saw as much as 15 to 20% increase in home prices, that's now in 2023, 2024 are reflecting in higher prop. Yes, did I mess that up? High property values now. Higher property taxes. And it's again, having an impact on fixed-income folks, lower income folks. And so we do, and, again, you know, similar to Florida, it was an also market with a lot of new construction. That's another thing we talk about, like how much housing units get added on an annual basis in Houston versus the entire state of California, right? And then you have Dallas. You have Austin, I mean you have... And then multifamily construction in those. So you have a lot, you know. So when you're talking about, you know, inventory shortages, these are not necessarily markets where, you know, it's not the same level of inventory shortages as-

- Yeah, so maybe we should also talk about... When we talking about inventory, you're talking about listings, right? You're not adding new homes and new communities into that measurement, or are you?

- Yeah, I was now talking about new homes and new communities, but I'm also talking about existing home sales being put up for sale. Yeah, I'm talking about both.

- Yeah, oh, so your inventory is the sum of both of them?

- Yeah.

- Oh, okay. All right. Because, you know, the story in Austin is, we economists who love saying, see, we, it actually works, is you had this big supply shift in Austin and rents have been falling pretty rapidly there.

- Yeah, yeah.

- So showing, and ultimately, if rents fall, that should filter its way through to housing prices and you would have a softening of house prices as well.

- Yeah, exactly. So Austin is the only market... Well, it's the market with highest decline in home prices since peak in 2022 before mortgage rates went up, that hasn't recovered back. So Austin is down 13% from that 2022 peak. And it's the only market with double digits declined since then that hasn't recovered. It's seen, over the last couple of years, maybe a little marginal increase here and there, but it's still down 13%.

- And do you know of... I don't. Do you know offhand what's happening with migration in Austin?

- Just that it's slowed. I don't know exactly.

- But there's still in migration as far as...

- I think there is still in migration. Yeah, yeah.

- Okay, okay. So, all right, let's... Well, before we come to our homestead of California, let's sort of stop for a moment, and I'm gonna just call them the desert twins is Phoenix and Las Vegas, which, you know, were very famous for being among the hardest hit cities in 2007, 2008. What's going on in those places right now?

- Yeah, so, okay, let's see. Where do I start? So similar state to Texas or Florida, a lot of new construction has happened in those markets. The same time, a lot existing inventory. So the inventory increase is a similar story. A lot more inventory. Like Mountain West, you know, outside the southeast markets, Mountain West, like Denver in particular, but then followed by Phoenix and little lesser extent Las Vegas, you have seen similar increases in inventory. Also, as a result, slower rate of home price appreciation. But unlike these other two areas, not the same, not the decline in home prices. So we have not yet seen decline. And I attribute that to the fact that you still have out migration from coastal California to Vegas and Phoenix. And, you know, we know that generally, you know, if it's retirees, they have a lot of equity that they build up. So cash to work with, or they are coming with higher incomes. So the demand composition is different, and it's holding up prices in those markets. So yes, home prices have slowed, but they're not declining there.

- Okay. So now let's talk about where we live, California. What's going on? And, of course, we probably should separate Southern and Northern California, and the Central Valley and Sacramento is another thing altogether. So tell us about what's going on here.

- Yeah, yeah. Well, many different stories. Thank you for the question. I love talking about California, but, you know, we should talk about Northeast at the end too because-

- No, no, no. As I said, we're doing a counterclockwise spin around the country.

- Oh, okay. Oh, sorry, okay.

- So no, we're gonna go up to the Pacific Northwest and then the Midwest. And as I said, that's why I wanted to start on the sour note and end on a higher note 'cause I know the Midwest and the Northeast are doing better than the rest of the country, so-

- Gotcha, okay.

- So we'll get there. Selma, I promise.

- Sorry I missed that. But California, so let's see. Also a lot of inventory gains, which has been really welcome change in this housing market. If you've been shopping for a home in California for last, I don't know, five years, I mean, you know it's one of the markets that's been most undersupplied. You know, no new construction. Almost no new construction, right? Or very low rates of new construction, and not in coastal parts of California, but more inland parts. So, you know, so not a new construction to supplement that inventory shortage. But now finally, we do see more inventory from existing homes. And actually, some of the highest increases have been in California markets. And I think the reason is that, well, one is more people own homes free and clear in California on average because they've hold onto their properties for longer because, you know, 'cause it's so hard to move 'cause it's so expensive, and no inventory, and so on, and so forth.

- Well, and the other thing is, again, the property tax benefit of staying in place is enormous here.

- Yeah, exactly. Exactly. So, there's all that that feeds into that lack of... But so now more inventory and people are asking why, where is this coming from? So, you know, California markets have also been one of the highest investor markets, but small investors. Unlike, you know, Atlanta's mega investors, we have a lot of small mom and pop investors in California. And so maybe it was for rental property. Maybe it was Airbnb, you know, or just second homes. But a lot of those type of purchases. And those are the folks now that are more likely to be put in their home for sale. Or retirees, we do have retirees living state because it's expensive. You know, we do also have issue with out migration continued. So more inventory. Now, price appreciation has also slowed. And, actually, home prices are pretty flat. There's not much change in home prices, I think because of more inventory. And then, you know, you have sort of even smaller regional things. You know, San Diego was really strong and booming up until about a year ago, I'll say, or maybe coming into this year. Why? Maybe because it was one of the strongest, one of the most affordable coastal markets. You know, when you compare San Diego to, like, say LA or San Francisco, it was more affordable. So, we did see more migration into that market from California, more expensive California market. So that was a store in San Diego, and that sort of slowed down. And we do see some declines in home sales activity in San Diego, but then you have LA hit by wildfires. That did impact, you know, that did disrupt home sales activity where we did see a burst in home sales, not just LA, but also Ventura County and Orange County from folks that have been impacted by the fires. You know, so that would be the higher end of the market, but it did boost home sales activity, and it sort of impacted bit of a demand for housing to where it would impact home prices. But, you know, after that sort of, and that wasn't long lasting, which was very interesting to me. There was no... It was only couple months following the fire, and now we've sort of returned back to, you know, the trends we were seeing in these markets before the fire, which is, you know, more inventory. Demand is here and there for a good home. You know, it's a lot of demand for not, you know, well-priced. You know, it's all about property to property. I think the demand exists. It's just that if the property's properly priced, right? So as a result of that, you know, a lot of times when people put listings, they tend to push to see how far they can go. And then, they reduce the price. So we do see more price discounts going on and essentially flat home prices. So that's SoCal. You were gonna say something.

- So what about the Bay Area?

- The Bay Area, yeah. The Bay Area is declining. The Bay area is not... Well, when I'm talking about the Bay Area, I'm talking about San Francisco and Oakland, not South Bay. San Francisco, Oakland are really weak. Oakland is one of those markets that is now seeing year over year decline, as in San Francisco. But then South Bay is doing really well. You know, South Bay has much more sales activity. It has positive home price growth. And then, you have these other markets, like Central Coast. You have northern part of the, you know, Northern Virginia, other than the Bay area. So above the Bay area, like vacation and second home markets. They're not doing that well, you know? Generally, I would say across country right now, secondary vacation markets and vacation markets are not doing well 'cause they did so well during the pandemic.

- Right.

- You know?

- Well one of the stories is Canadians are trying to sell their houses in large numbers, but they don't want to come to the US for their second homes anymore. I don't know if there is a strong foundation to that story or not.

- You know, it's hard to tell because there's not good data on that. One data source is NAR, and they do their annual survey, which just was released, like, I think last few days, last week.

- Yep.

- That showed that international sales went up. But that was leading up to March of 2025. So it was like the year prior to March, 2025. You know, so I don't know what happened since 'cause really the rhetoric sort of picked up since then.

- So Selma, let's continue our tour. We'll leave the Bay Area, and now go up to the northwestern part of the country. What's happening in the Seattle area?

- Yeah, so Seattle, you know, it's been a market with ups and downs. And, you know, it's been a little bit slower relative to maybe some, you know, like... You know, coastal California definitely saw like more increases and more dynamics. Seattle not as much dynamics, but I did see migration data there. It was a persistent outflow of folks leaving that area. And so it could be potentially that they're leaving Seattle itself for adjacent more affordable smaller towns. So for example, you know, Seattle home prices on a year-over-year basis are up only about 0.7%, but then Tacoma is up 2.8%. So there is search for affordability. And you see that, you know, outside, you know, those dynamics that we talked about that are specific to the southeast and south. The other regions you're seeing mixed over results, depending on, you know, if a region, if an area is affordable or not, what's happening employment-wise, and so I would say there that Seattle does have that, like, mixed picture.

- So, you know, when you talk about Tacoma being about 2.8, it does make me think that the CPI number came in at 2.9 the other day. And, so what we're really talking about, even in Tacoma is real house prices are flat.

- Right.

- And remind me. I mean, we started with the national numbers. What's the year-over-year national house price?

- It's 1.8.

- 1.8. So in real terms, in purchasing power terms-

- Yeah.

- Houses are worth less other than were a year ago.

- Right, exactly.

- Yeah, yeah, yeah. Okay, let's move on to the Rockies and in particular, Boise. You've used the phrase poster child for what happened during the pandemic. Lots of people moved to Boise. They got very annoyed, in particular, with Californians. Tell us what's been going on since then.

- Yeah, so, you know, a lot of... It was the top appreciating market in the first couple of years of the pandemic because of these migration patterns. And then you had 2022 where both migration to that area slowed, and we saw a rise in mortgage rates, which made it very, very unaffordable for local residents to afford to buy homes in that market. And so that was one of the first markets that saw drop in home prices. Now, we are seeing a little bit of a rebound, you know. It's not nowhere near it was, you know, pre-2022, but we are seeing some rebound, both in home sales, and in home prices as well. So, you know, I think it's just a market that's readjusting to what locals can afford. You know, not necessarily Californians, but locals.

- Yeah, yeah, yeah. So, and that in migration, has it remained pretty slow after that remarkable ramp up in the first,,,

- Yeah, yeah.

- Years of the decade? Yeah, yeah, yeah. So that makes a lot of sense. And now what about Denver?

- Yeah, Denver, you know, what's interesting to me about Denver is its top market with largest increases in inventory overall in the last year. So when you look at inventory for Denver, both for existing, and it's also one of the top new construction markets, maybe not Denver itself, but, you know, surrounding areas. So it has a lot of inventory. So because of that, we did see slowing of home price appreciation in Denver. It's essentially flat, not in real... So it's down 0.1%. Real terms, you know, 2% down now. But it's not to me as concerning of a market. Now, it is a market, though, when you think about wildfire risk and sort of pricing of insurance... Oh, the other thing about that market is it saw one of the largest increases in property taxes. You know, it has such structure that tax increases are based off of whatever home price increases were. So similar to taxes, what we were talking about. And so it's, you know, when we looked at the escrow needed for, you know, for median homeowner, that escrow went up 30% in just one year period from 2023 to 2024. So it became really expensive for even existing homeowners, right, to maintain that home ownership. So, I think that's sort of feeding into issues in that market, but it's still a very large immigration market. It's still, you know, a big job market. So I'm not as concerned about that market. Maybe as, you know, some of the other ones.

- You know, one thing that always puzzles me a little bit is let's say, I'm gonna just make up an example. Let's say property value is double. That doesn't mean governments need to spend twice as much money.

- Right.

- Right? Schools haven't doubled. Fire departments haven't doubled. Parks haven't doubled. Police departments haven't doubled, and so on.

- Yeah.

- And so I always wonder why communities, when property values go up a lot, don't lower their property tax rates so that you don't have this sort of affordability shock, which leads to a political resentment of the property tax, which I think in a lot of ways is a really good way to tax things locally. But it's always... This is what happened in California in the '70s. House price went up a lot. So property tax went up with them, and we got Proposition 13 as a result of that. And it sounds like something very similar is going on in Denver, and we've already talked about Florida and Texas in that regard.

- Yeah, but, you know, we did work with Denver tax assessment department in trying to find ways or trying to identify communities where people are, you know, more income sensitive to this and how they can help these folks. And so I think, you know, at least in Denver or Colorado, it does seem like local governments are aware of what that potentially could mean down the road.

- Okay, that's good to know. So let's move to the part of the world where I grew up, the Midwest. And it's known for being cold, but in the housing market right now, it's pretty hot, right?

- Yeah, yeah. It is one of the strongest appreciating markets. You know, that and Northeast, Midwest and Northeast. It's been the case for the last year or so. And you know, and people often, you know, sort of wonder why, you know. It's not the high migration market. It's not necessarily strong, you know, most dynamic labor market. But it's affordable market, and that makes a huge difference. And the other thing too that's really important right now in terms of what's happening to home prices regionally, is it didn't appreciate a lot during the pandemic. So there is not that, you know, reset or, you know, case of overvaluation. It's just steady as she goes sort of thing. Most of the Midwest is like that, you know, and so you see more steadier long-term, you know, price growth and not as much volatility in the market as we see in some other markets.

- Yeah, it's funny. If you look at rents over a long period of time, Chicago has the most stable rent of any large city in the United States.

- Interesting.

- Yeah, yeah. And so it also makes sense that you don't get the volatility in the house prices, but are there places in the Midwest where there is some in migration?

- No, I do think so. I think, you know, Ohio for example... Some of those... I think Ohio was sort of like on a hot list last year. I'm trying to think what other places. Well, Michigan, I don't know about migration, you know, like a longer term migration, but it was pretty hot, like vacation market, you know, 'cause-

- I see.

- So you did see a lot of appreciation there as a result. You know, and I do think that to some extent Chips Act and IRA, and, you know, infrastructure spending did help some of those regions and maybe created job opportunities and hence demand for housing.

- So let's finish off with the Northeast: Boston, New York, Philadelphia, et cetera. What's going on over there?

- Yeah, yeah, same thing. You know, some of the most strongest appreciating markets at the moment. Also the same story in terms of not a lot of appreciation during the pandemic. You know, cumulatively, even though they're seeing now upper single digits, cumulatively, they're still lower than the national average or those markets in Florida or Texas that we were talking about earlier. So still less than, you know, that 40% cumulative increase. So there's some catching up there. But also, you know, I think, you know, when you think about... So that's one component of that. The other one is, you know, that the call back to the office to work from office, I think that drove some of those folks that were maybe checking out other markets in the country back to that region. And so markets that surround New York that are, you know, more, you know, lower density, sort of more affordable, that's where you see... And Connecticut, too. Connecticut is not definitely more affordable, but I think Connecticut, you know, what's happening in Connecticut goes... Top, I think, three markets are in Connecticut for, you know, double, almost double home price appreciation, double digit. You know, it's a income, I think, effect from New York. I mean, whenever equity markets are doing well and you get a bonus season in March, you see, you know, a boost in demand and home prices for those higher end properties. So I think that's what's happening there.

- So I'd like to finish off our conversation on a couple of topics that are more big picture, and the first is the impact of investors on the single family housing market. And I still see elected officials blaming investors for prices being unaffordable. And I know you and Cotality have done work on this. What have you been finding?

- Yeah, so I mean definitely the rate, the level of investor activity has gone up over, you know, since 2017. I think that's sort of... But, you know, there's a tax benefit too. You know, we're talking about the big beautiful bill now again and what the tax benefits for investment in real estate is. There is still that tax benefit. So, you know, I think that's really what has initially boosted investor activity. And so, you know, according to our data, about anywhere between 20 and 30% of single family homes go to investors. One thing to keep in mind, there could be exchange between investors. So sale from an investor to an investor. It's not necessarily that it's all going out of the traditional part of group to this-

- That's a really important point. And I should know this, but I don't. About what share of single family houses are for rent at any point in time? It's a good number, right?

- That's a great question, Richard. I have no idea.

- Okay. All right. We will figure this out, but-

- Yeah.

- You know, just sort of doing a... We know about... There are about 40 million rental households in the US, and it's a little more than that, but I'm rounding, and about half live in... 55% live in one to four. So I'll say, let's say 40% live in one single family houses. So 40% of 40 million is like 16 million.

- Yeah.

- And out of what, 85, 90 million single family houses in the US, something like that. So you're looking at just in steady state, 16, 17%, a little more than that-

- Yeah. Of the housing stock that's in the hands of investors. And if I made a mistake just now, I'll clean it up later.

- Yeah, yeah.

- But... And most of these investors, of course, are not big corporations, right? They're individuals who-

- Yeah.

- Buy a house and rent it out. And so 30% still sounds like kind of a big number relative to that, but a good chunk of that 30 is, in fact, investors selling to other investors.

- Yeah, yeah. And also, like you said, the majority are small investors. So 50% of total investor group is those that own three to 10 homes. So we consider those small investors. It's only about, like, lower single digits, I wanna say about 7%, that is mega investors or, you know, those that own over a thousand properties. And that actually has slowed. You know, it's reversed in favor of more small mom and pop investors. So yeah, I think-

- I just wanna underline that. So mom and pop investors are now becoming a bigger share again-

- Yes.

- Of the single family home investment community.

- Yes, that's correct. Yeah, yeah. And the other thing that varies quite a bit is the types of investors are different in different regions or in different metros, right? So this institutional investors that everybody thinks about, it's mostly dominating markets like, you know, Dallas, Atlanta, Charlotte, you know, the southeastern markets, and I think they go where jobs and in migration goes, whereas small investors, they dominate in markets like SoCal because they are relying on a lack of homes, shortage of homes. So they know they're gonna have a pretty steady, you know, demand, I guess, given how much shortage we have of homes in California. So that's where you see the small investors mostly.

- So let's finish by talking about climate risk because you've developed a measure of climate risk, yes? For each house or each neighborhood. So tell us about what it is exactly that you're up to, and then I'll have a follow up question.

- Okay, so I wish I could say that I did it, but it was an amazing team at Cotality, and a team of a lot of people that did this. But I utilize the data. I'm a data consumer. And so, it's called hazard risks score, and it assesses the potential of impact of natural disasters on a property. And so we've developed this for all properties in US, including single family homes and commercial real estate. So we have a score for each property in the US. And so, you know, the way it works is that, you know... And so, we also developed a score for different types of natural disasters. So there is a wildfire risk score. There is a flood, earthquake, wind and storm. And so you know, each... And then there is also a composite score, which sort of takes into account all of these and creates some sort of composite. And what's interesting about this scores is, you know, they don't take into consideration just, you know, weather patterns or climate in an area, but also the type of property, structural characteristics, you know, what's the elevation of the property, what's the proximity to say, you know, areas that are very prone to wildfire risk. You know, you have those really dry areas of California that, you know, if your proximity to that, your wildfire score goes up. You know, but then it gets adjusted for materials that are used in your home, you know. So there is that. So it takes into consideration, again, not just the climate part, but structural part as well.

- And so have you been able to correlate that with home values and different markets, or are you working on that? I mean, tell us how you're implementing this as a tool.

- Yeah, so there's a lot of applications. You know, the way our clients use it, it is for underwriting risk, you know. It's for risk management. It's for disaster recovery planning. What we do is we do look at how those risks scores impact probability of, say, going into a default in mortgage delinquency, you know, and then, you know, what is the impact on random prices, post-natural-disaster? And so, you know, there's so many questions to ask with this data, you know. I think we have yet to scratch the surface.

- Well, I guess. So let me suggest a couple... One, it would be interesting to know whether, first of all, prices are sensitive to this in general. So you would think that something subject to flood risk, say, might, all else being equal, sell for a little less money than something that's not. But also, you know, the relative impacts of these different risks on marketplace perspective. So are people more afraid of fire? Are they more afraid of floods? Are they more afraid of hurricanes to kind of go with floods? Are they more afraid of earthquakes? Et cetera. And so, yeah, I think there's a whole lot of mining to do with this stuff to see-

- Yeah, yeah, absolutely. So in terms of pricing, you know, we've already seen markets, and we talked about that when talking about the Gulf Coast region of the US. You were already seeing areas that have high exposure to floods. But, mind you, you know, the awareness around floods and storm water surge is, you know, among your regular folks is not that deep. You know? So sometimes people are not aware what could happen other than they see persistent natural disasters hitting an area. And so Louisiana is a great example of that. You know, it's one of the slowest appreciating markets in the country. It has some of the highest delinquency rates. You know, so it's just the market that's, you know, really in the sort of eye of the storm.

- Yeah, well it is, right? Yeah, literally, not just figuratively.

- Yeah, yeah. And so it gets impacted a lot. So we do already have a lot to say based on that example. But, you know, in terms of mobility, what's interesting too is a lot of times areas that do have higher exposure, you know, sometimes are more affordable. So when you think about California, and you think about, urban-rural, yeah, is it urban rural interface?

- Yeah.

- You know, that's where you can build. That's where homes get built that are more affordable. And so people move there. Like, you know, Altadena. And, you know, what happened in Altadena is a good example of that. So unfortunately, the other thing is, you know, Florida, you know, is a high magnet market, you know. It attracts a lot of people because people sometimes either don't take climate seriously or they're thinking, okay, in my lifetime I'll be fine. Or, you know, it's really when you start hitting their wallet with insurance costs that now you're seeing people start to pay attention. And, so, you know, migration patterns up until this point were not necessarily correlated with understanding of risk, but I see that moving in a different direction going forward.

- And so I'm curious. So do insurance companies talk to you guys about what you're up to?

- Yeah, yeah. No, we have a whole insurance group within CoreLogic. CoreLogic has actually expanded our insurance group. So we do work with a lot of insurance companies and their users scores. And you know, in states... So, you know, insurance pricing is also a legislative thing at the state level.

- Yes.

- So, like, in California you can't, you know, but in states that it's more easy to adjust insurance costs based on risk, risk scoring is being used. So yeah, so absolutely.

- Yeah, so another study I would like to see done, and I don't know of one. So, I'd love to see the impact of insurance on house prices. So if you get a big increase in insurance in an area, do you see house prices there fall relative to the rest, you know, nearby areas. And along those lines where we started is HOA fees. What's their... If you see a big change in HOA fees in the short run, you get a decline in house values relative to other areas, which, you know... If you have a 40-year-old building, it needs to be redone regardless of what the HOA fees are. So whether the HOA fees are realistic now or not shouldn't matter. I suppose reserves should matter. If you have a lot of reserves, then you should have a more valuable building. But it seems there are all these price signals out there, and we need to start sorting out how they're influencing these very micro-level housing market dynamics.

- Yeah, yeah. Well, you know, condo market in Florida is already. And that is, you know... I don't know if I've mentioned this already, but in our home price index, we separate detached and attached housing. And attached housing is actually down in nominal terms, on a year-over-year basis, is down almost 1% versus detached. And in a lot of that comes from the weakness in Florida condo market because of the HOA reserves and also, well, surge in inventory as a result, you know. It's really supply and demand. Always comes down to supply and demand. And so the other thing I did wanna... You mentioned something about insurance, and I lost it.

- So like, you know, if you have a neighbor... Let's say you have a zip code and insurance goes up there more rapidly than the surrounding zip codes. Do you see that? Do you see a discernible impact on house prices in that neighborhood?

- Right, right, yes.

- [Richard] Zip code's probably too big. Census tract,

- Yeah. Yeah, so insurance cost is, like, famously hard to... Insurance premiums are famously hard to come by. The way we go about estimating insurance costs is through our escrow data, but what you don't know necessarily is, you know, what does it cover? You know, is it just, you know, what is it? Is it addendum A? Or whatever it's called. So it's a very messy thing that I think nobody has yet really gotten full grasp on, you know, and then when you look at insurance costs being recorded, you know, like quotes, you know, there are companies now that will tell you at the zip code level, you know, how much insurance costs are. But then you compare different companies, and they have vastly different averages. And so like, what do I take? It depends on, I guess, who is inputting the data, right? Who is inputting the quote. So it's just been a really hard thing to really wrap our heads around. But the last thing. I do remember now what I wanted to mention is that we are seeing risk starting to being priced into mortgage rates. So we do see markets that have been exposed or have had natural disasters, the cost of, you know, your APR mortgage rate being higher in those markets relative to those that have lower risk scores. So it's gonna become more expensive or it is more expensive to now borrow in those markets

- Now, you know, given that the vast preponderance of mortgages are guaranteed by Fannie, Freddie, and Ginnie... I'm trying to think what... So are these... Well, Ginnie couldn't do it, but are Fannie and Freddie changing their pricing based on climate risk?

- Yeah, I think it's a big hot potato right now. You know, I think there was some attempt at that, and then that got squashed. So I don't-

- Yeah, yeah, yeah. I'm just trying to think where these differences in price come from. I mean, if it's on the private side or, you know, the non GSE side, you could certainly see where that would come from.

- Yeah, yeah.

- But...

- Yeah, so another example of that would be that loans that are originated in these high-risk markets are more likely to be sold off and not hold in portfolios.

- Yep.

- You know, so, yeah, that's another version of that.

- So, well, Selma, thank you for spending some time with us today. It's always great to hear what you're finding out about housing markets around the country and about the research that Cotality is doing. The stuff on climate risk is really interesting to contemplate. And I think your work has really been among the most useful in terms of the single family investor market of anyone out there. So, again, thanks for joining us today.

- Thank you. Thank you so much for having me, Richard.